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Markets inch upwards

Stock markets closed higher as bargain hunters moved in to pick up some cheaper stocks following three days of sharp declines.

The modest breakout came amid one more indication the U.S. housing market is worsening.

On top of a report that dropped expectations for pending U.S. home sales, Wal-Mart and other retailers reported disappointing sales and an outlook from Cisco Systems fell short of expectations.

"I don't think the dismal news is a sign that we have another horrible correction ahead of us but it is confirming that, you know what? This looks like a recession," said Vincent Deslisle, portfolio manager at Scotiabank in Montreal.

"And more importantly for equity markets, the damage to earnings is likely to be quite severe during '08 and early '09."

It was a volatile session in Toronto as the S&P/TSX composite index surged a couple of times by more than 100 points before ending the session up 58.17 points to 12,925.37.

The TSX Venture Exchange moved down 12.62 points to 2,493.04 while the Canadian dollar was 0.46 of a cent lower to 98.93 cents (U.S.).

New York's Dow Jones industrial average was also whipsawed and came down from gain of more than 130 points to negative territory before closing 46.9 points higher to 12,247.

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The Nasdaq composite index was up 14.28 points at 2,293.03 after Cisco met analyst expectations for the past quarter but estimated its growth rate in the current quarter at 10 per cent, below the 15 per cent projected by analysts.

The S&P 500 index ticked 10.46 points higher to 1,336.91 as the National Association of Realtors said its seasonally adjusted index of pending sales for existing homes fell to a reading of 85.9 from a downwardly revised November index of 87.2.

The reading was just short of the record low of 85.5 it hit in August, at the peak of the worldwide credit squeeze.

Other data showed higher-than-expected U.S. unemployment insurance claims for last week.

Merchants including Wal-Mart Stores reported weak January results, as consumers dealt with high gasoline and food prices, a slumping housing market, an escalating credit crisis and a weakening job market.

Among the few winners was Costco Wholesale, whose seven per cent gain in same-store sales beat Wall Street expectations.

Wal-Mart, the world's largest retailer, reported a 0.5 per cent gain in business at stores open at least a year, far below the two per cent rise analysts had expected.

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There was further evidence of a significant slowdown in U.S. economic activity at the end of the year – the Federal Reserve reported that consumers increased their borrowing in December at the slowest pace in eight months.

It has been a tough week on stock markets following two weeks of relative calm. More signs that the U.S. is in for a recession – including a report from the Institute for Supply Management showing the U.S. service sector slipping into contraction mode last month – chopped 448 points or 3.4 per cent from the TSX in three days, while the Dow industrials fell 543 points or 4.25 per cent.

Deslisle called the ISM report "stunning – it's not even a disappointment, that's an understatement. The number was so awful that you almost don't believe it."

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The Toronto financial sector was the main source of strength, rising 0.76 per cent with Royal Bank (TSX: RY) ahead $1.17 to $51.29 and TD Bank (TSX: TD) gained 62 cents to $67.30.

Shares in investment firm Canaccord Capital Inc. (TSX: CCI) fell 24 cents to $12.60 after the company reported a third-quarter profit of $15 million, down 36.5 per cent from a year-earlier as it took a hit on third-party asset-backed commercial paper and suffered from market volatility.

The TSX energy sector was up 0.73 per cent Thursday as crude oil continued to head lower as data pointed to higher inventories and concerns grew about lower demand. The March crude contract on the New York Mercantile Exchange rose 97 cents to $87.96 (U.S.) a barrel. Petro-Canada (TSX: PCA) climbed 65 cents to $43.77 while Canadian Natural Resources (TSX: CNQ) shed $1.22 to $60.95.

The base metals sector contributed a 2.2 per cent increase to the session with Teck Cominco Ltd. (TSX: TCK.B) ahead $1.19 to $34.67.

The gold sector was flat as the April bullion contract on the Nymex moved up $5 to $910 (U.S.) an ounce.

Loblaw Cos. (TSX: L) declined seven cents to $30.73 after fourth-quarter earnings of $40 million. Adjusted for one-time items, the quarter's earnings per share were 43 cents, 11 cents short of analyst expectations. Standard and Poor's cut the company's rating on long term corporate debt and senior debt ratings from BBB plus to BBB, which is still investment grade.

Thomson Corp. (TSX: TOC) is raising its dividend by 10 per cent after a "milestone" year in which net income increased to $4 billion (U.S.) from $1.12 billion. Thomson shares were 28 cents lower to $34.86 (Canadian).

Shares in retailer Canadian Tire Corp. (TSX: CTC) drifted 78 cents lower to $62.82 after it reported a 15.5 per cent increase in fourth-quarter profit to $125.1 million, as total retail sales across its hardware, clothing and petroleum outlets rose 3.1 per cent to $3 billion. The profit increase came even as quarterly same-store sales at its iconic Canadian Tire retail stores fell 1.8 per cent year over year.

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